In the coming weeks, the Madrid Assembly is expected to approve a new deduction for investments by new taxpayers from abroad (popularly known as the “Mbappe Law”), which will presumably take effect from January 1, 2024.
What is the “Mbappe Law”?
The Mbappe Law consists of a deduction in the regional segment of the Personal Income Tax (IRPF) of the Community of Madrid of 20 percent for new taxpayers who establish their residence in the Community and invest in certain patrimonial elements in the region.
Currently, the Personal Income Tax has two segments: a national segment common to all Spaniards, which for incomes over 300,000 euros amounts to 24.5%, and a regional segment which, for incomes over 57,000 euros, in the Community of Madrid amounts to 20.5%.
In total, a high income in the Community of Madrid must pay 45% of their income, but from now on there will be an exception.
The law being prepared by the Community will deduct 20% of the regional segment—which is 20.5%, almost eliminating it entirely—for investments made in the region.
For example, a taxpayer who earns income amounting to 50 million euros and invests 20 million in companies in the Community of Madrid that meet the requirements for the application of the deduction, these 20 million are practically exempt from taxes.
With this deduction, the aim is, in the words of the Draft Law, “to encourage the arrival of new investors to the Community of Madrid, the creation of new companies, and the growth of those already operating, thus strengthening the Community as a center of attraction for investments, companies, and talents.”
Requirements for the application of the deduction:
1.- Investment in the following patrimonial elements:
– Securities representing the transfer to third parties of own capital, traded or not, in organized markets.
– Securities representing participation in the equity of any type of entity, traded or not, in organized markets. In this case, the entity cannot be constituted or domiciled in a tax haven and the direct or indirect participation of the taxpayer, along with that of their spouse or any person related to the taxpayer up to the second degree included, cannot exceed 40 percent of the share capital, nor can the taxpayer perform management functions or maintain an employment relationship in the entity subject to investment.
– In no case can the investment be materialized in real estate.
2.- The investment must be made in the same fiscal year as the acquisition of the fiscal residence in the Community of Madrid or in the following fiscal year. Additionally, the taxpayer must maintain the acquired investment for a period of six years.
3.- The taxpayer must not have been a resident in Spain during the five years prior to the change of residence to the territory of the Community of Madrid and must maintain the status of taxpayer in Madrid for six years.
If you wish to receive personalized advice on the “Mbappe Law” and how to benefit from this deduction in the Community of Madrid, we invite you to consult a specialist lawyer. Our team of commercial lawyers is available to help you resolve any questions and guide you through the process. Contact us today.
